The number of magazine and newspaper pages
Paper industry has felt the impact of growing number of e-book readers, smartphones and tablet PC’s just to mention few. Digital substitution has hit the mature markets but might affect the emerging markets as well. People, for example in India, might take a leap in technology and move straight to digital news paper even though printed papers have increased together with the higher living standards. According to PwC, consumers are not the only ones causing decrease in the demand for paper. Also advertisers are investing more and more on digital forms pushing down the number of magazine and newspaper pages.
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Businesses are also looking for ways to shift away from paper billing, paper tickets and changing processes to digital ones. Sectors such as packaging and hygiene applications will continue to prosper, especially in the emerging markets. In this area, however, innovation will play significant part. (PWC, 2011) Buyers Many industries, such as food sector and retailing are concentrating more and more, becoming big and powerful against competition and suppliers. This creates bigger bargaining power for the buyers of the paper industry products.
Furthermore consumers’ do not face big switching costs from for example newspapers to digital substitutes or one paper producer to another one, hence granting them bargaining power as well. SCA is a world hygiene and paper company. Total asset have been merely decreasing last years and are 139,004 millions of SEK. The company aims to be a leader in providing product improving day-life. The value of the firm is based on its history and technological process, SCA’s value is a sustainably production. As the company works directly with raw ecological product, environmental concerns are clearly in its mind.
Trying to improve the way resources are efficiently used, is trying to improve the firm’s value. Even if it has a clear positioning, the company has seen its ROE dropped to 1%, even if the return on capital employed was 10 % with an objective of 13 %. We will focus on the division of forest products. Forest products, such as paper and pulp, very substitutable product, account for 16 % of SCA’s net sales. This division of the group is well resourced. The company is the largest private forest owner in Europe with 2,6 millions of hectare.
This resource is the one of the main advantage SCA has, integration of supply of raw material is closed to 50%. This is not the only advantage the company has, they also have important capabilities. Its business is geographically dispersed, sales are made in more than 100 countries, and the production counts 250 units manufactures in 40 countries. The company has a valuable know-how: the knowledge of local market conditions and its global experience. Although SCA maintain a close relation to its consumers, the company first has to face the retailers.
Their size is a key parameter, and they are integrating horizontally. The ability of SCA of making profit is linked to its relation with the retailers. To face future, the company is implementing its strategic priorities which are capital efficiency and growth. Capital efficiency is realized through cost effectiveness and improving the cash flow. Last year, 2011, the operating cash flow generated was 8575 million SEK. Growth rests on the aim of the company of being the leader in its products and on the consistent work of research and development.
Big is not a synonym of success and in the future the forest product division of SCA will face big challenges such as changing markets and changes in consumer behavior. Its profitability will depend on its ability to move with the demand and continue developing its resources. Stora Enso Stora Enso emphasizes strongly that renewable materials are in the focus of their future operations. Since wood is and will be the most important raw material Stora Enso tries to ensure that keeping this material by improving economically, socially and environmentally sustainable and tree plantation management practices.
The aim is to meet the needs of their customers and at the same time cope with the challenges of today’s global raw material challenges. Regarding these challenges Stora Enso is formulating their goals and values accordingly to the key areas of creativity, renewable products and trust. Due to rising energy costs as well as the environmental implications Stora Enso tries to generate energy internally and could raise the electricity self-sufficiency from 33 % in 2009 to 40 % in 2011. Additionally, Stora Enso invested in Wind parks to contribute to the increase of usage of low-carbon sources.
In order to achieve goals like bringing environmental benefits such as improved resource efficiency the investments in R&D in the amount of 80. 1 million EUR or 0. 7 % of the revenue in 2011 were made. Furthermore, new products are being developed in cooperation with customers and other stakeholders in the key-areas of wood- and fibre-based products, services and bioenergy. (Stora Enso Global Responsibility Report 2011, p. 29). The search for new products and new opportunities led Stora Enso also to growth markets like South America (Uruguay, Brazil) and Asia (China, Laos, Thailand) where they are parts of joint ventures.
The heavy investments in plantations in growth markets and R&D go together with a sharp increase of employees. How Stora Enso wants to gain a competitive advantage in the future they formulate shortly but concisely: “We will win with solutions based on renewable materials. ” (Stora Enso Financial Report 2011) By putting a focus on a fibre-based packaging that offers long-term growth and innovation potential the company has created a new business area called “renewable packaging”.
The other three areas “Printing and Reading” (Newsprint and Book Paper, magazine paper, fine paper), “Biomaterials” and “Building and Living” (wood based innovations for construction and interior decoration) are completing Stora Enso’s product range and show the diversification efforts. The Return on Equity declined sharply from 13. 5% in 2010 to 5. 6% in 2011 due to a decline of operating profit from 986. 2 million EUR (2010) to 759. 3 million EUR (2011) whereas the cash flow after investments increased from 591. 7 million EUR to 624. 7. The total assets remained stable with 12 999. 1 million EUR compared to 13 036,7 in 2010.